The Obama administration has recently reduced by 60,000 the number of jobs created or preserved by stimulus funds. The acknowledged overstatement of jobs underscores the problem with all government statistics: There is an inherent bias to report success and no real incentive to report problems.

The stimulus itself has another serious problem: It discourages productivity, or doing more work with fewer people. Those twin problems make it very difficult to expend tax dollars in an economically effective way.

Consider the problem of reporting jobs. Any expenditure of public funds to pay for government-supported jobs will, superficially, create or save the particular jobs funded by the tax dollars. But does a job artificially created with public funds mean a net increase in employment? The reduction of the value of the dollar means that private companies have less real dollar value to spend on jobs, and an increase in the business tax burden means that private companies have less after-tax money to spend on employment.

Inflation reduces the real value of the money that private business can spend. Taxation, the other way that the federal government pays for its expenditures, comes out of the pockets of the private sector. Without this inflation or higher tax burdens, would private firms be able to spend more real dollars on hiring people? Yes: Most private businesses would be at least as quick to spend money on new employees (or to prevent layoffs) than artificial jobs created by the stimulus funds.

Personnel costs tend to be very elastic in most business operations. Companies cannot reduce fixed costs like rent, taxes, and utilities. Supplies, travel costs, and equipment expenses can be cut, but only to certain limits. Newly hired employees, other employees close to retirement, and employees who companies planned to hire are the easiest and safest cuts to make by strapped businesses. The Obama administration has not calculated the employment losses caused in the private sector by its inflationary policies, but the job losses are still very real.

Equally serious is the economic inefficiency of “make work” federally funded jobs. When the federal government is seeking just to increase employment, the problem grows much more severe. If a small city can keep the grounds in its municipal parks with five highly efficient and hard-working employees or add five more people with stimulus funds to do the same work much less economically, then there is “job creation” by having 10 men do the work of five, but there is no economic benefit at all. In fact, acclimating a city to have 10 men to do a job that five could do makes city operations more inefficient.

This assumes that five more park workers were actually hired at all. Financially distressed cities might very likely identify the five park workers as “jobs preserved,” which would account in the stimulus employment calculation as real jobs saved. As a practical matter, though, all that has happened is that the source of funding for the five park jobs has temporarily shifted from city revenues to federal revenues, with the additional loss of meaningful work consumed by the intermediate layers of bureaucracy.

What if the city decides that, even with stimulus money, it must still reduce the number of park workers from five to three? If the city claims in its application for stimulus funds that it is creating or preserving five jobs, even though those jobs are largely illusory, who is going to object? It is in the interest of all those government employees at the municipal and federal level involved to assume that the fictitious job numbers are right. The stimulus funds will be used to pick up this or that municipal employee in different parts of city government without increasing services at all, or, indeed, while still reducing services.
 
The private sector is made economically honest because the market punishes fiction quickly and effectively. Except when ordered by government, private businesses hire and keep people because it makes economic sense. Cutting taxes reduces inflationary spending, and ending overregulation will increase productive employment (and national wealth) very quickly — business, especially small businesses, can make smart decisions very fast. If full, productive employment is the goal of the Obama administration, stimulus funds move the nation in exactly the opposite direction. And it is not just jobs that are lost by pouring oceans of tax dollars on make-work projects: Valid information, like job numbers, is lost too.
 

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Jeff said:

This is a bunch of hog wash There are so many flaws in the article above. #1) The stimulus package isn't being paid for with current taxes, its being paid for with borrowing, so there are no current tax increases on the private sector offsetting the government spending, indeed a large part of the stimulus pack is TAX CUTS for the private sector. #2) Inflation is virtually non-existent right now, so the inflation that you talk about draining the spending power of private businesses doesn't exist. These things might (almost certainly will) exist in the future, but they don't exist now. If the economy recovers in the future then the economy will be better able to handle higher inflation and taxes in the future, when hopefully unemployment is lower. #3) Federally funded jobs are not by definition "make work". The majority of the stimulus money went to paying for public school teachers. Without the money either A) states would have had to raise taxes B) states would have had to fire teachers C) states would have had to make other cuts (presumably jobs in other sectors) to come up with the money, or D) all of the above. Other major uses of the stimulus money has been to pay for police and fire personnel, and to pay for public infrastructure projects, namely things like work on roads, d**ns, and bridges. Report after report on public infrastructure says that our infrastructure is dangerously poorly maintained and needs a lot of work to get it to where it needs to be, so this is much needed work that has been put off for really 30 years. The views expressed in this article are just typical blindly ideologically driven Ayn Randian free market only non-sense.

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November 17, 2009 | url
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Bonnie said:

	... Jeff must be a product of the public schools he so badly wants to protect. He should be angry with them. They failed to teach him the definition of inflation. He also thinks d**n is infrastructure and not condemnation! Poor Jeff...
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November 17, 2009
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Jeff said:

	... Bonnie: http://www.usinflationcalculat...9/1000418/ "Consumer prices were flat over the past 12 months, according to the latest data from the Bureau of Labor Statistics (BLS) provided on Friday, Feb. 20. The annual inflation rate is hovering right at 0%, marking the lowest level since 1955."
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November 17, 2009 | url
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Bonnie said:

... Well, Jeff, that just goes to show you that you aren't the only one who doesn't know what inflation is! You've been conned. Consumer prices have been flat, owing to the extremely poor state of the economy. Mounting debt is contributing greatly to the state of the economy. This mounting debt is being monetized, which is to say, new dollars are being created. The current M1 money supply increase (inflation) is the largest in American history. You have fallen for the fallacy that one can spend their way to prosperity.

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November 17, 2009
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JJ Suprise said:

Inflation Hey Jeff, Bonnie is exactly right. Inflation is NOT rising prices! It is an increase in the money supply, therefore devaluing every other dollar in circulation. Inflation is at its highest rate in the history of this country. You have indeed been duped by the Government Indoctrination Centers that you call schools. They need to be abolished not given more money. Government is the only thing on the planet that succeeds through failure and our schools are a PERFECT example of that success through failure in action thanks to useful idiots like you Jeff.

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November 17, 2009 | url
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jim said:

	... This article is incredibly accurate. Anyone in business that knows business would concure.
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November 21, 2009
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Paul said:

	Pauly The only jobs that should be counted are jobs that result in an increase in productivity. Obviously almost none of the Stimulus created jobs do this. Wealth or prosperity cannot be created by printing or borrowing money and handing it out. That would be free. Nothing is free. We need to produce more to fix this economic mess. We need to work; not borrow or print There is no other way.
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November 23, 2009
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